Commercial Leasing

I was reading an article the other day about the proliferation of GPS technology; specifically, how those wonderful satellites sitting in geosynchronous orbit around the Earth do so much more than tell our cars how to get to where we’re going. The time signals they emit tell our mobile phones which cell towers to talk to, they dictate how our electricity grids and air traffic control systems interact, they prevent fraud in the financial services industry and a myriad other uses. It was interesting.

One of the problems with that proliferation though, is reliance. With so much riding on the GPS system, it doesn’t take much to do a lot of damage. And while the system itself is pretty reliable, the rise of counter-technologies has brought the whole system under increased scrutiny. GPS jammers and spoofers, while illegal in Canada, are becoming increasingly common. Sold under the guise of protecting privacy, their targets often lie in the transportation industry, where GPS location devices are used to monitor and track loads and inventory or assess tolls.

Jammers are widely available on the internet and cost as little as fifty dollars. Though illegal, their use still continues to rise. Their potential for harm beyond their intended use is only starting to be realized. In the last few years, they have shut down airports, emergency pager systems, harbour navigation, ATMs and entire mobile phone networks.

We have clients who use GPS location devices to secure their inventory and manage their services. Those in trucking need to know when their deliveries will happen and those in vehicle rentals need to know how to locate a stolen vehicle. Spoofers and jammers seek to undermine those applications of the GPS system.

For our clients, jammers represent a threat to their cash flow and their capital.

While our clients’ employment and rental agreements contain the requisite language with respect to consent for the GPS tracking features, in the past we have relied on the penalty provisions of the Radiocommunication Act to restrict use of jammers. Given the increased use of these devices however, we are recommending specific restrictions in the applicable agreements, including severe penalties and indemnifications.

We feel these penalties and indemnifications may be necessary in situations where employees or customers use jammers for the purpose of undermining the proper functioning of the GPS location systems and where such jamming creates third party damage. While the potential damage is incalculable, it is of the utmost importance that those employing GPS location services ensure that they take all reasonable steps to deter jamming and to disclaim responsibility.

In this blog entry, I will tell you one simple rule that is guaranteed to reduce all of your legal fees, increase your protection from liability and ensure that your affairs are in order. Actually, I already have in the title of this entry – follow through.

If you have been reading this blog for the past few months (Hi Mom!), you will have garnered all sorts of tidbits about what lawyers do and how we do it. You will understand many of the areas where we can help you do what you do better and you will have some idea of how bad things can get when they get bad.

But the one thing that we can’t do in a lot of cases is finalize the work that we have done. That part is on you. I suspect that many people feel that once they have gone to the effort of making that appointment with their lawyer and giving authorization to draft a document or to act on their behalf in some capacity, they can breathe a sign of relief.

In reality, the value of what we do often doesn’t materialize until the job is done.

For example, I usually give my estate clients my standard legal advice after they leave my office, having just delivered their Will instructions – don’t die until we get this signed! While there is an attempt at levity there, there is also a very serious point – the work that you pay for isn’t doing anyone any good until it’s done.

Unfortunately life gets in the way. Between that first visit with the lawyer and finalizing the work, things happen. You may put off an e-mail asking for your instructions until later or you may leave a finished document in your desk drawer, to be signed at some convenient time that never seems to come.

Whatever the reason, if you have retained counsel to review your business processes and make recommendations, but don’t act on them, you have wasted your money. If you have retained counsel to draft a business agreement or to address a compliance issue, and haven’t signed off on the agreement, you have wasted your money.

But most importantly, delays in finalizing legal work mean that you are not protected, or that the problem that you brought to us, remains unsolved. This is the biggest issue and the one that can ultimately lead to the greatest cost.

If you have legal work in progress that is all but finished, please follow up on it and do what it takes to finalize it. You’ll be lucky if you never know how much that might save you.

If you work in the Greater Toronto area, then as I type this blog entry (Friday, G8/G20 day) you have likely realized this week that you needed to change how you work due to the summit meetings being held in our area.

Many have had to figure out how to work from home – and as of today, many are wondering if their home internet service provider will have enough band width to withstand everyone from Toronto working from home all at once.

Others have discovered the interesting back routes of Toronto in order to avoid closures due to motorcades and fences.

On Wednesday many of us also realized that we need to consider earthquake preparedness. Having grown up on the West Coast of Canada as soon as our office building started to sway, I reverted to the behaviour drilled into us in elementary school: I looked for overhead door jams to stand under. It was only at that time did I realize, there are no structural support door jams in our office – clearly, we need to address our earthquake preparedness.

Taking the lessons from this week a step further, all businesses, regardless of size, must be prepared in the event they are hit with a law suit. In particular, in this day of email and instant messaging, all businesses must have a Document Retention Policy, including an Electronic Document Retention Policy.

The document retention policy needs to set out the procedures for creation, storage, destruction and production of documents, including electronic documents. This involves addressing backup and storage needs, which thankfully due to advances in IT have come down significantly in cost and ease of accessibility for small businesses.

In addition to being law suit ready, a document retention policy ensures that you are complying with certain Government required retention periods, for e.g. Canada Business Corporations Act requires corporations to hold onto accounting records, meeting minutes and director’s resolutions for 6 years after the end of the financial year to which they relate and the Ontario Employment Standards Act requires businesses to hold onto employee name, address and dates of employment for 3 years after the employment ceases.

Failure to comply with legislated retention periods can lead to fines and the suggestion that businesses are hiding information in a law suit.

Be prepared – it’s not just for G8/G20 weekend – its for your entire business and this week is a good reminder of why you need to be prepared.

Lately I’ve found that I don’t like the way I have traditionally answered the question: “What do you do?” My answer for the past 17 years has generally been “I”m a corporate/commercial trial lawyer”.

This response has generally lead to blank stares and for those brave enough, the follow up question “what is that?”

It has only taken me 17 years (I”m such a quick learner) to realize the simpler way to describe what I do is to say “I’m a trial lawyer who only handles business law.” O.K. …. so that is wordier and therefore, likely a work in progress, but it is a start down the correct path.

Corporate/Commercial Law is a technical definition. It is a Law School definition and one that we boring lawyer types understand – but it does not embrace the energy of what we really do: we’re business lawyers.

As a trial lawyer, I pursue and defend the rights of businesses in any situation they find themselves. Paul Voorn & Ann Hatsios are also Business Trial Lawyers (look, I shortened it already … I’m becoming a quicker study!)

As a business transaction lawyer, Scott Young of our firm advises businesses on all aspects of their work – from start up to wind up and the fun parts in between, including the particularly active Trade Mark aspects of business.

In my legal writing I’ve always believed simple is better – and stating we’re Business Lawyers just makes sense …. now to look into Trademarking that …. Scott?

It’s not as if this topic is something we’re looking forward to, but it will be a reality for Ontario at the end of next month – the HST is coming and it will make a change to the bottom line on your legal fees.

Currently only GST is charged on legal fees. Certain disbursements, such as government fees, do not contain any tax at all and those disbursements will not be changing.

However, July 1, 2010 all legal fees will be subject to the HST effectively increasing your bill by 8%.

As businesses, we are all able to have the HST flow through, much as the GST has in the past and the expectation is that we will not notice the effect of the HST due to this.

However, if your business is contemplating a transaction such as a shareholder agreement, contract or asset transfer, you may wish to consider incurring the bulk of the legal fees before June 30, 2010 in order to reduce the fees which may not be offset by purchases.

Isn’t this a happy thought, right before a holiday long weekend? I suppose that is why Ontario calls it the May 2-4 weekend, you might need a 2-4 to feel better about the HST.

A recent Court of Appeal case affirming an earlier Supreme Court decision, provides some interesting, and possibly surpirsing, commentary on the allocation of risk in commercial leases.

In 1044589 Ontario Inc. carrying on business as Nantucket Business Centre v AB Autorama Ltd. the Ontario Court of Appeal ruled on the liability for damages that resulted from a fire that occurred due to the tenant’s negligent use of a leased unit. The parties had negotiated an Offer to Lease, which required the tenant to maintain commercial liability insurance (including fire, premises and liability) in the amount of two million dollars.

There was a fire and there were damages. Presumably the amount of damages exceeded the two million dollar cap, or whatever amount the tenant’s insurance paid out in any event, and the landlord attempted to sue for the excess damages. The landlord was acting under the general rule that a tenant is responsible for damage caused by its own negligence.

However, the court held that under the circumstances, the obligation to carry the insurance transferred the risk of loss to the landlord. The court held that any other result would deprive the tenant of the benefit of paying the insurance premiums. The landlord was precluded from carrying on its claim against the tenant.

If you are a landlord and your standard form leases contain an insurance requirement, you should be aware that they may shifting liability for excess damages on to you. Whether the Nantucket v Autorama case will apply to your leases will depend on the context of the full lease, the percentage of the building rented, and any other covenants contained in the lease.

There are two pieces of advice that we can offer to avoid liability for any damages not covered by insurance.

□ The first is a requirement of tenants to carry insurance well in excess of what might reasonably be required in order to pay for damages. If insurance fully covers all of the losses associated with the negligent act, then it never becomes an issue. We recognize of course that insurance is expensive and that this option may not be commercially viable for most tenants.

□ The second is to ensure that the lease is drafted so as to give clear and unambiguous consideration to the question of liability for damages that result from negligence. Such drafting must give regard to the entirety of the lease (including the offer to lease), and factors such as the tenant’s liability for the whole building.

If you have any questions about this, we can review any lease you have in place or any offer to lease that you are negotiating. We can advise you of your exposure and we can suggest practical solutions. Don’t hesitate to contact us.